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Small businesses and startups often get lumped together but they’re different ventures with vastly different goals, and that means they need different things to thrive.
The words “startup” and “small business” seem interchangeable enough – startups often start out small, after all – except they’re not.
And the differences have major implications for the best approach to helping San Diego startups thrive.
Many small business owners start a company with the help of a bank loan or their own money and are immediately focused on sustainability. They hire a handful of employees and want to quickly be viable enough to pay their bills.
Startups tend to follow a different path. They start small but they’re bent on explosive growth. An entrepreneur has an idea she hopes will make a massive impact, seeks out multiple investors and potentially, millions of dollars in profits. The payoff may be years away. For most, it never comes.
“When the startup is in that small phase they’re still not structured or acting like or financed like a small business,” said Brant Cooper, an Encinitas-based startup connoisseur who co-wrote the New York Times bestseller “The Lean Entrepreneur.”
Their eye is on an eventual stock market launch instead of simply staying local like most small businesses.
Still, misunderstandings abound. Even publications that are presumably experts on business can amplify the confusion.
Take a March Forbes ranking. San Diego ranked No. 1 on the magazine’s list of best places to launch a startup. The metrics behind that ranking – and the article itself – only referred to small businesses, though. San Diego boosters who touted the first-place finish described the city as the best place to open a startup or a small business. Or both.
Mayor Kevin Faulconer used the terms interchangeably in a press release:
“It’s no secret to San Diego’s entrepreneurs and startup community that San Diego is a great place to start a business. This is just a reminder that we need to continue to foster a fertile environment for small businesses to grow.”
But a fertile environment for small businesses isn’t necessarily a fertile environment for startups.
Startups have a host of concerns that don’t match most small businesses’ needs. They start with an innovative idea and may want office space or guidance from others as they develop it. They need outside capital, a concept that many startup founders have said is a particular challenge here.
Most local government programs aren’t geared toward helping them get these things.
Cities including San Diego have long catered their loan programs, seminars and other offerings toward small businesses. There are also industry groups that can offer advice to small businesses.
Then there’s the issue of speed. Businesses often bemoan waiting games when it comes to government but startups are intent on growing at a much swifter clip than most companies.
So many small business programs that might be helpful to startups just don’t move fast enough, startup evangelist and consultant Gabriela Dow said.
Startups burn through cash quickly and may need funding or additional office space in an instant. Government entities generally can’t offer that.
“A lot of the programs take too long and the startups just can’t wait that long,” Dow said.
They can work sometimes.
And in 2008, Barrio Logan startup New Leaf Biofuel received a $590,000 loan from the San Diego Regional Revolving Loan Fund, which is supported by funds from the federal government as well as San Diego and Chula Vista.
Deputy Chief Operating Officer David Graham, who oversees San Diego’s economic development department, argued the city has more to offer startups than entrepreneurs realize.
“In many cases, these folks never engaged with the city and never realized there would be something we could help with,” he said.
Much of the city’s startup work thus far has focused on collaboration with other groups. For example, it’s offered grant funding to a few, including EvoNexus, an incubator that offers free rent space for young startups.
Graham said Faulconer wants to step up those efforts. His administration signed onto a White House-promoted Mayors Makers Challenge and is organizing a committee to promote manufacturing entrepreneurship. They’re also directly asking the tech startup crowd how they can help.
The No. 1 takeaway from those conversations? Incentives are nice but promotion is more important, at least for now.
A mayor’s office spokesman said Faulconer will soon announce initiatives to spotlight San Diego innovators and help them grow.
Yashar Ahmadpour, CEO of scheduling app startup CrowdClock, is one of the entrepreneurs offering input to the mayor’s office. He’s also one of a handful of CEOs behind localstartups.co, a group that aims to foster greater connectivity and awareness about the local startup scene.
He’s convinced city politicians’ bullhorns could be key.
Greater public awareness of San Diego’s startup scene could not only attract new companies but also discourage talent coming out of UC San Diego and other local universities from bolting to the Bay Area, he said. It could also mean greater investment in San Diego startups.
Ruprecht von Buttlar, who leads the nonprofit Connect’s Springboard program for science and technology companies, said the latter need is most dire.
“We need to find a way to showcase our technology in a way that makes Bay Area investors look to San Diego for possible investments,” von Buttlar said.
The mayor might help, von Buttlar suggested, by hosting a large-scale innovation trade show to draw attention from out-of-town funders.
He thinks the city should fund a staffer who acts as a go-to for startups, similar to the city’s small business ambassador. That person could help the city strategize and identify which startups merit city investment as well as answer questions about city resources or incentives.
Of course, opinions vary on how much government should wade in. Some startup founders say they’d prefer the city and state government to stay out of their business altogether.
Others like Ahmadpour want city leaders to better understand their unique needs so they can adapt programs, incentives and promotional campaigns to specifically boost local startups. They’ve also rallied behind a proposal to convert the old Central Library into a startup incubator.
And they point to moves in New York and elsewhere to roll out the red carpet for startups.
New York state, for example, kicked off a program that allows startups and more traditional companies to avoid taxes for up to a decade if they settle in certain zones. San Francisco Mayor Ed Lee debuted a high-profile entrepreneurship-in-residence program that aims to have city workers and startups team to improve city services.
Up to this point, Ahmadpour said, the city hasn’t necessarily hampered San Diego startups but it also hasn’t tailored its economic development approach to help them.
“They’re not in our way but they also haven’t been making things easier,” Ahmadpour said.
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, The Catch-22 of San Diego’s Tourism Economy, and the next, No, San Diego Doesn’t Have a Startup Ban on the Books.